iSPIRT works to transform India into a hub for new generation software products, by addressing crucial government policy, creating market catalysts and grow the maturity of product entrepreneurs. Welcome to the Official Insights!
The iSPIRT product teardown (esp. for SaaS websites) is primarily structured around 5 key principles outlined below.
What is the problem you are trying to solve? Who is your target user? It is critical to have a clear picture of your target user persona, their problem and how your solution solves their pain point. Essentially establish your problem-solution fit and articulate it for the customer journey from Discovery → Conversion.
How do customers find your product? Is it through google search? Is there a channel they frequent? Have you identified your TAM (total addressable market), SAM (serviceable addressable market) and SOM (serviceable obtainable market)? Use this model to help identify strategies to have your SOM discover your product.
Your website is the first & most important way to establish trust & relationship with your customer. This is true even if you don’t use inside sales. What is your first message or hook for your target user persona? Are they able to connect your product with their problem and the path through which they discovered your product? Are they able to understand how your product solves their problem, and why they should use it? Once they identify with your message and establish trust & credibility the rest becomes easier.
Sign up 💰
If the customer has understood your solution and found it fit for their needs, the last purchase decision is the cost. As Suresh said
If the cost connects, signup happens!.
WoW! reaction 🌅
Post signup, is there a WoW first experience? Whether it is a try & buy experience or a first purchase onboarding, it is important for customers to experience some instant gratification for the grueling journey they just went through. Believe me, making a purchase decision can be taxing. If you can make this journey pleasant and the final destination fantastic, you have a winning product 🏆.
Do go through the video above and hear Suresh’s simple explanation. And if you like what you hear remember you can apply here for a teardown in your city.
Coming soon – 2017 SaaS Survey
While I still have your attention, we are excited to announce that we would be launching the third edition (2017) of the India SaaS Survey in a week from now. This survey is an annual exercise conducted jointly by SignalHill and iSPIRT to gather valuable data for drawing insights which help various stakeholders in the ecosystem understand this space better.
Please click on the following link to access last year’s survey results
Please stay tuned to this space. We will be providing a link to this year’s survey very soon in an upcoming blog post.
The amount of time & effort Bharath & Suresh provided to review and analyze each product before the actual teardown is simply inspiring. 🙇🏻. to their commitment to the community.
Finance minister had announced during budget 2016 that place of effective management (POEM) will determine if a company is resident in India or not. Accordingly, this was notified in Finance ACT 2016 as under.
The details of what will determine the place of business rules was not decided in the Finance Act 2016. The POEM provisions was supposed to become effective from April 2017. The detailed guidelines of what rules and conditions will determine the POEM has been issued by CBDT on 24 January 2017.
Ever since the announcement in 2016 there were many apprehensions on POEM, especially in SaaS companies.
In order to clear this apprehension a PolicyHacks session of iSPIRT was conducted.
The video discussion on POEM attended by Girish Rowjee, Founder CEO of Greytrip; Mrigank, Mrigank Tripathi, Founder CEO of Qustn Technologies; Sanjay Khan Nagra, of Khaitan and Co.; Avinash Raghava and Sudhir Singh, iSPIRT is given below.
What does the above POEM ruling incorporate in finance bill imply?
In simple terms the place of effective management in above act means a place where key management or commercial decisions that are necessary for the conduct of the business of an entity are made, in substance. This implies Indian resident status on a company will apply even when the entity is incorporated outside India, if the place of effective management is proven to be in India.
The guidelines issued on 24th January 2017 by CBDT will be used to determine if a business of non-Indian entity or a subsidiary of Indian entity will fall under the place of business rules or not. The Guide lines can be accessed here.
POEM is an internationally recognised test for determination of residence of a company incorporated in a foreign jurisdiction.
Why this regulation has been brought in?
POEM require Indian firms with overseas subsidiaries or foreign companies in India to pay local taxes based on where the business is effectively controlled.
The main intention of this regulation is to capture the income in shell companies incorporated outside India that are held by resident Indians with a basic intention of retaining the income outside India.
The regulation is not intended to discourage valid Indian businesses to setup an entity outside India or operate in global markets.
Does it impact Software sector?
It is very common for the India Software companies to open an office in foreign geography, many times as a subsidiary of Indian company and sometimes a new entity with mixed local and Indian management. Hence, the POEM has been worrying entrepreneurs in this sector. For SaaS segment, it is very normal to have a foreign entity, either for reasons of funding or market penetration.
As mentioned above, for a valid global business the POEM will not be a hurdle. Businesses, having global operation but not retaining income in foreign companies (i.e repatriating profits to Indian company) through authorised route and after complying with other regulations, POEM will not be a a worrying factor.
There may be a very few Software Companies, who may need to be concerned, to pass the test of POEM. Any determination of the POEM will depend upon the facts and circumstances of a given case. The POEM concept is one of substance over form. If POEM is established to be in India for businesses operating outside India, they will be taxed in India.
It is not possible to generalize the impact of POEM on Software sector or illustrate few used cases. Whether a business operating outside India will get classified as POEM can only be ascertained after detailed examination.
Exemption for turnover less than 50 Crore
There is good news for startups as per the Press release accessible here, it has been decided that the POEM guidelines shall not apply to companies having turnover or gross receipts of Rs. 50 crore or less in a financial year.
This was not clear before video discussion and doubts were expressed during discussion, as this rule has not been described in the guideline circular of CBDT but has been mentioned in the press release of same date from CBDT.
Hence, we can expect that the rule of less than 50 crore income shall be embedded in income tax rules to be notified later.
Other salient features
The provision would be effective from 1st April 2017 and will apply to Assessment Year 2017-18 and subsequent assessment years.
The Assessing Officer (AO) shall, before initiating any proceedings for holding a company incorporated outside India, on the basis of its POEM, as being resident in India, seek prior approval of the Principal Commissioner or the Commissioner, as the case may be.
Further, in case the AO proposes to hold a company incorporated outside India, on the basis of its POEM, as being resident in India then any such finding shall be given by the AO after seeking prior approval of the collegium of three members consisting of the Principal Commissioners or the Commissioners, as the case may be, to be constituted by the Principal Chief Commissioner of the region concerned, in this regard. The collegium so constituted shall provide an opportunity of being heard to the company before issuing any directions in the matter.
The point 2 and 3 mentioned above will ascertain that there is no arbitrary discretion exercised by Assessing officers on ground.
The Guidelines issued can be accessed here, also provides examples that explains when an active business outside India will be treated as Indian business based on POEM. These examples do not explain each and every case.
Also the exemption of 50 Crore is neither given in Finance Act or in the Guidelines but mentioned in press release.
CBDT may therefore issue further circulars to clarify these positions.
When you say “reduce SaaS churn”, most people will immediately imagine tactics like drip email campaigns, great onboarding, customer marketing, gamification and automated alerts when users show signs of leaving. But this post is not about tactics. This post recognizes that users are smarter than any of the cute tricks we can come up with, and it attempts to get to the core of why there are some products that business users keep paying for, and others they discard.
If you’re a founder or product manager, I’ll encourage you to think deeply about this stuff, versus thinking about your next “growth hack”.
Products on which company processes are based
There are products on which organizational functions are dependent and processes are built. These are usually CRMs, Marketing Automation, HR software and Support software. The defining features are
they’re used by decision makers for reporting purposes and are often used to track teams’ KPIs and goals
they’re used to run day-to-day functions of the team and organization, for example, the process of applying for and approving employee leaves, or changing the stage of a sales opportunity
some people are logged in to the system during their entire working day
others log in once in a while to complete certain tasks
the system collects and retains valuable data that companies are not comfortable losing
Some observations about these products are
the sales cycles are usually longer than a month
customers will rarely buy these products without first being sure of the processes that are dependent on them
they need extensive API support and data integrations, because the data they collect becomes more valuable once combined with other data
heavy cross-functional training is required after the sale, and the product takes the blame if a customer org. doesn’t adopt and use it to the best of its capability
you need a lot of quality documentation so that you’re not overburdened with support tickets
An important note about products used by decision makers
When I started out at VWO a few years ago, the most important metrics were “free-trial signups” and “paid customers” (about 95% were self-service monthly subscriptions). Back then, Google Analytics (GA) was our most important source of data. We recorded free-trial signups, upgrades to a paid subscription and revenue in GA so it was what we looked at everyday.
In the past couple of years, we’ve started serving more mid-market and enterprise customers. Because of this, a few things have changed:
The average deal size has increased from $x00 to $x0000
The quality of free-trial signups matters as much as the quantity
A large amount of revenue comes from payments made through bank-transfers and other offline methods
“New MRR” is now more important than “new customers”
Because of all these changes, Google Analytics isn’t important anymore. Instead, the big decision are made after looking at reports in the CRM and our database, where all lead/deal/customer/revenue data sits. Through this shift I observed how when businesses evolve, the metrics that matter to them change, and this has a domino effect on the SaaS products that fall in and out of favor.
Now here’s another interesting anecdote: VWO has a large number of ecommerce customers. For the majority of these businesses, Google Analytics is the “source of truth”, so we simply had to build an integration with GA. In fact, we once lost a big customer because their VWO test reports didn’t agree with their GA data (completely possible and for good reasons, read this to understand why). The internal VWO champion tried to fight it out and explain the difference to management, but we lost the customer after some time.
So my point is this… it is well worth your while to build capabilities that will be used to make the important decisions, and if that’s not possible, then align your product with the primary reporting tool used by your target market.
Products that give results with minimal effort after initial setup
Some of these are:
Lead generation pop-ups, sidebars
Landing page software (specially when tied to on-going PPC campaigns or SEO keywords)
Retargeting software, like Perfect Audience and AdRoll
Exit intent pop-ups, almost always tied to lead generation
While you’re building a product that keeps producing results with minimal interference, give a thought to how you can add public branding for that little bit of ‘virality’.
It’s also important to note that products tied to performance will quickly be removed when that performance isn’t enough. In this case, the product itself may be great, but it is dependent on something else working. For example, landing page software gets abandoned when the Adwords campaigns it was used for aren’t working out.
Products that monitor and provide reports and alerts on a recurring basis without needing additional effort
Few that come to mind are
Mention (social mention tracking, we’ve had it on for at least a couple years… rarely log in but open almost every daily email report)
SEOKeywordRanking (SEO keyword rank tracking; old school interface and not updated in a long time, but am sure its creator Will Reinhardt doesn’t need to work anymore)
While building your product, talk to users about the data they find most useful and want to look at everyday, or see what parts of your reports are accessed most often, then send that data out as daily/weekly emails. It becomes a part of users’ morning routine to check the emails and note/discuss/alert if something’s going right or wrong.
Products that enable data flow between different systems
Think Zapier, PipeMonk, Jitterbit and Informatica. Admittedly, data integration is more of an enterprise problem, but the good thing is that once put in, they’re very difficult to remove. That’s because they’re usually implemented after someone high enough has identified the need to have all the various data silos talking to each other, and that robust decisions can’t be made without a complete picture of the issue at hand.
Case study: Hubspot
Processes are based around the product? Yes, for marketing and sales
There’s someone almost always logged in? Yes, marketing
Managers use the product to report on performance? Yes, primarily marketing qualified leads, then customers and revenue
Product collects and retains valuable data that customers are not comfortable losing? Yes
Has components that produce results without needing on-going effort? Yes, lead-gen landing pages, website personalization, automated rule-based emails
Components that monitor and alert automatically? Yes, primarily alerts to sales owners about lead activity, and other alerts around social media, monthly/quarterly goals, etc.
Components that enable data flow between different systems? A well maintained and documented Salesforce connector, otherwise they have a platform for developers
As you can see, Hubspot is doing pretty well in minimizing churn. It seems to me that would be the case with most large, successful SaaS products. In fact, understanding the reasons why organizations keep paying for products is why large successful software are large and successful, as compared to just large.
I hope you’re able to use this post as a framework to think about what makes products stick, and apply those principles to the products you’re managing or building. Also, do you have anything else I can add to this? For some reason it seems to me the list is incomplete.
A patent is a form of intellectual property defined as “a government authority or licence conferring a right or title for a set period, especially the sole right to exclude others from making, using, or selling an invention.” The purpose of a patent is to protect the intellectual property created by an inventor for a period of time so that the inventor has first rights over how he wishes to use his patent. A patent can be sold, leased, be used in exchange for royalties, equity, etc. A patent holder however, does not become the holder of the invention unless he has invented it first.
The then British Government of India, during the year 1856, tried to encourage and propagate new inventions termed as ‘exclusive privileges’ in the manufacturing sector. The first invention to be granted Intellectual Property Protection in India was by the Government of India under the petition special privileges to George Alfred DePenning for inventing the ‘Efficient Punkah (fan) Pulling Machine.’
The Indian Patents Act, 1970
The list of inventions patentable are:
Process, manner, or method of manufacture or Art
Machine, apparatus or other articles
Product patent for medicines, food, drugs and chemicals
A substance should be produced by manufacturing
Computer software used with hardware or with technical application to industry
Inventions Not Patentable (Sec 3)
The following is a list of inventions that cannot be patented:
Any invention obviously contradictory to established laws or that is superficial.
Any invention that could be used to exploit the population, contrary to morality, public order, or causes prejudice to life or health (of animals, plants, natural resources, humans,etc).
The discovery of a scientific principle, any substance occurring naturally (living or nonliving) or any abstract theory.
If no new product is formed nor a new reactant is formed using machines or apparatus. The discovery of a new property or new form of a substance.
Mere mixture of chemicals.
The duplication, rearrangement or arrangement of known devices.
A method of horticulture or agriculture.
Any surgical, medical, diagnostic, therapeutic, etc. process for the treatment of humans or animals (to render them free from disease).
Animals and plants in part or whole (other than microorganisms).
Algorithms, computer programmes, business or mathematical methods.
Musical, literary, artistic, dramatic, cinematographic (aesthetic productions or works), or television productions.
The mental strategy in playing a game, a mental act, rule, method or scheme.
Topography of integrated circuits
An invention that is traditional knowledge or which is a duplication or aggregate of known components properties.
Inventions related to atomic energy cannot be patentable under Sec 20 (1) of the Atomic Energy Act, 1962.
Application For Patents
The person applying for a patent should apply jointly with another person or alone and can be:
The first and true inventor of an invention.
An assignee can make an application on behalf of the first and true inventor of the invention.
The legal representative of a deceased applicant provided that before death, the applicant was entitled to make such an application.
Form Of Application
Every application made shall be for one patent only at the patent office in the prescribed form.
An international applicant applying for a patent in India under the Patent Cooperation Treaty must file a corresponding application before the Controller in India. No patent is valid for the entire world because patent law is territorial in nature. Filing an application in India enables a person to file for application at convention member countries which makes the application process easier when applying to multiple countries.
Amendments To The Patents Act And Rules
The Indian Patent Act was amended in 1999, 2002 and 2005. The need for patenting marks of patent agent examination, and chemicals and drugs under Trade Related Intellectual Property Rights (TRIPS) brought about the need for an amendment to the Patent Act.
The Indian Patent Rules were amended in 2003, 2005, 2006, 2012, 2013, 2014 and 2016. The rules were amended to include a fixed fee structure, patent agent exam qualification, appointment of the patent office as searching and examining authority, third category for applicants that are small entities.
The Indian Patents Office
The Office of the Controller General of Patents, Design and Trademarks (CGPDTM) administers the Indian Patent Office, which is an Office of the Government of India that is entitled with administering the laws of patents, trademarks and designs. It is important to note the distinction between patents, designs and trademarks.
The duration of any patent filed in India is valid for a period of 20 years (irrespective of filing with complete or provisional specification) from the date of filing the application. If an applicant wishes to file an application under PCT, then the term of 20 years begins from the date of international patent filing. If an applicant wishes to file a patent in another country, then he must file the patent with the Patent Office of that respective country (through the conventional filing of an application or through the PCT route) since patents granted in India are valid only throughout the territory of India.
How To Get A Patent?
Get an Idea for a Patent
First get an idea of what has to be patented, and the same has to be presented on paper with a description, drawings and sketches (if necessary) explaining the work of the invention.
Next, an individual must check the list of patentable inventions. The Patent Act (as mentioned above) entails what constitutes a patentable invention and what doesn’t. Only if an idea is patentable can an individual move forward to the next step. It also enables an individual to search for existing patents in case the idea or patent already exists.
If a patent is at the early stages of its development, then an inventor can file a provisional patent. This enables an inventor to secure a filing date (12 months of time to file complete specification) and it is also lower in cost to file a provisional patent as compared to the cost of filing a complete patent. If an inventor has complete specifications about the invention, then the individual can file for complete specification.
Publication of the Application
After an inventor has filed for complete specification, the application is published 18 months post first filing. If an inventor feels that they cannot wait for the period of 18 months from the date of filing the application, then s(he) can file for an early publication request along with the prescribed fees and the patent would take about a month to be published under an early publication request.
Request for Examination
The controller, upon receiving an RFE request from the applicant, hands over the patent to the patent examiner for examining criteria such as novelty, enabling, inventive step, patentable subject-matter and industrial application. All steps covered till now (from patent application till grant) is termed as patent prosecution. The patent examiner then submits a first examination report to the controller and the applicant which consists of documents of the claimed invention.
Response and Clearing of Objections
Based on the examination report, most patent applicants would receive objections. A patent agent can help create a response to the objections raised in the application. An inventor can communicate to the controller as to why his invention is patentable.
Grant of Patent
After all objects raised in the report are resolved and the patent is deemed to be in order of grant after meeting all criteria requirements, the patent is granted to the applicant as early as possible. The grant of a patent is published in the patent journal.
As we move towards becoming a Product Nation, it is important that companies and individuals own their IP. A Patent can become a competitive advantage in itself and is to be ignored at your own peril!
The commodity products (which is a copy of an innovative product)
The innovative products get sign ups and are able to scale because they have built a very useful and handy USP. They get word of mouth from early users which are enough for them to grow to a considerable size.
However, most SaaS products today fall into the commodity category with no innovative features. For such products, three factors are really important to grow.
One you have marketed your product well, and have people landing on your website, the first important thing is to get them to Sign up. Here the most important criteria is Pricing. As you are a commodity product, the price point, lower than the market leader will help in getting paying customers. Such a pricing strategy helps you get the price conscious customers to sign up. Remember, pricing is a factor of features. Pricing would be irrelevant without features, and your software needs to provide the features that your competitor is giving at a lower price.
Let’s take the example of Freshdesk. When Freshdesk launched, pricing was their major differentiator from their competitor Zendesk.
Usability, UI, UX
Pricing can get you signups. However, your users need to start using your software to give you their credit card ultimately. If you are not a market leader and want even to become the second best, you will have to focus on the design and usability of the product.
Often the first mover tends to avoid design, as they are competing on their innovative feature and design is where the late movers can compete on. Easy to use design coupled with self-onboarding features will help in getting the customer engaged.
The trials most SaaS products have is for 15/30 days. It is practically impossible to implement the product in the complete organisation in 15 days’ time and try all features of the product. Hence, the usability & design of the product is the most important deciding factor.
As you already have ensured a convincing pricing, there is a very high probability that the user will convert to a paying customer.
Pipedrive is one company which entered the CRM space rather late and still could make it big. This is because Pipedrive focused on the usability of the product. They have taken care of very small things — every time my team cancels a meeting or an appointment, Pipedrive gives an automated pop up which will ask for the next appointment. It reduces the chances of losing a lead in the pile because of not setting up the next activity. I run SoftwareSuggest, and have many friends who run CRM software companies. All of these CRMs are free for us to use, but we still prefer to pay Pipedrive because of its usability.
Converting a user to paid customer is not enough in SaaS. You will need to maximize the lifetime value (LTV) of the customer so that you start making profits. Once the user has converted to a customer, you need to start focusing on ensuring impeccable service quality. Organisations generally don’t prefer to move from one SaaS product to another. It’s a pain. Once they have signed up for a product, they like to stick with it. However, not focusing on customer experience once they have made the first payment will lead to churn. They might even leave before you have recovered your cost of customer acquisition. Hence, you will need to constantly monitor their usage of the product and ensure that the time on the app is increasing. Setting up a customer success team can be a good method. Good service will help in increasing the lifetime value of the customer.
Recurring Billing – demystified for SaaS companies
For any SaaS Startup with India market focus, the biggest bottleneck today is recurring billing. It is not available as an open, over the counter service from payment gateways. Most startups have to work around to solve this problem. The workaround may be using an expensive international payment gateway or it may be incorporating a subsidiary in foreign geography. Many startups also move all out of India, if they can afford to do so. In the process India loses some good SaaS companies.
Reading into details, recurring billing is not banned by RBI in India. But, banks and payments gateways do not have the offering available over the counter. Complying with two factor authentication (2FA) and the associated risk of chargebacks are the reasons behind. The payment industry experts say, banks offer it but needs to cover their risk for chargeback scenarios. So, one has to negotiate with banks and therefore large players are able to avail these services.
To bridge the gap startups like Razorpay are building the aggregator payment platform that that can work between the SaaS startups and the Banks to offer recurring billing.
Since, it is not smooth enough, recurring billing is an area, which requires policy maker’s attention. To realize the full potential of a single unified market under GST, the ‘Digital India’ requires a more open, clearly defined and an enabling policy and procedure on digital payments, at par with developed countries.
This article is based on a deep dive into the problem of recurring billing, with experts from payment solution companies Krish Subramanian, Co-founder, Chargebee (Subscription Billing & Recurring Payments Software) and Kiran Jain of Razorpay (a payment gateway aggregator).
Embedded below is a hangout video with these two experts. You may like to watch the video and/or read the blog piece below (which is built on the conversation in the video).
Some terms used in online payment industry
It is a subscription driven model of charging or collecting payment from customer. Both the frequency interval of charging and amount charged are fixed to qualify for recurring billing. Software as a Service (SaaS) companies are the biggest users of this service.
Merchant: A person or business who want to sell goods or services.
Acquiring Bank: It is the Merchant’s Bank
Card holder: The buyer who owns and uses a credit/debit/prepaid card etc. to buy goods and services
Issuing Bank: Itis the Cardholder’s Bank. An issuing bank issues credit cards to consumers.
SaaS industry and status of recurring billing?
SaaS startups offer products or productized services in a subscription model that runs in a per user/seat at a fixed frequency say per month. In SaaS industry, the recurring billing is often at a low cost transactions e.g. $10 to $50 per user per month.
In developed countries like USA online payment gateways and payment aggregator offer these services. A startup in India can sign for the service from these international payment gateways (like 2Checkout and PayPal) sitting in India. This can be done with minimum paperwork and absolutely no hassles. But, the cost is almost double the cost of payment gateway services in India. The down sides are payments may not be real time. Also, currency conversion cost twice. Once, when the Indian customer pay in foreign exchange and again when the international payment gateway pays to the Indian merchant.
Problem is the Indian payment gateways do not provide the recurring billing option as seamlessly as foreign payment gateways. Hence, the need to go to foreign gateway, when an Indian SaaS company wants to sell to Indian customers.
Krish of Chargebee adds, “for SaaS companies a non-negotiable aspect to provide frictionless experience to customers is the ability to collect payments on month on month basis”. (please see the video)
Statutory position of recurring billing in India
If one reads through the RBI’s circulars on two factor authentication (2FA), there is no mention of recurring billing. The RBI’s communication vide RBI/2011-12/145 DPSS.PD.CO. No.223/02.14.003 / 2011-2012 August 04, 2011 covering card not present (CNP) transactions which includes online transactions as also the IVR transactions states following two conditions:
Based on the feedback from the stakeholders and keeping in view the interest of card holders the following directions are issued:
(i) It is mandatory to put in place additional factor of authentication for all CNP transactions indicated in para 4 of our directions dated December 31, 2010 with effect from May 01, 2012.
(ii) In case of customer complaint regarding issues, if any, arising out of transactions effected without the additional factor of authentication after the stipulated date, the issuer bank shall reimburse the loss to the customer further without demur.
For an avid policy interpreter this means 2FA is the requirement for every transaction. It is not a straight forward clear position.
Kiran Jain of Razorpay, reads in to the sentence of same communication, where it says, “The matter was discussed in a meeting of banks with the Reserve Bank of India on June 22, 2011 wherein it was emphasized by the Reserve Bank that while it was not advocating any specific solution in this regard,”. Kiran says, “From RBI perspective there is no restriction in India”. According to him recurring billing is allowed under RBI guidelines provided in first transaction 2FA is followed and there is no restriction even by banks. (please see the video)
If recurring billing is allowed why is it not available openly?
Banks have a risk in complying with the mandatory charge back, in case when customer files a complaint. The issuing banks are supposed to refund to customer in case complaint from the customer. Normally the risk is never transferred to the acquiring bank.
Kiran in the conversation talks about the lack of understanding on risk involved, by merchants in India. Banks needs to cover their risk through transaction fee. Merchants in India don’t want to pay high transaction fees, that can cover the risk involved in charge backs.
Banks are not willing to underwrite the risk for small players. This is why there are no readymade recurring solutions available in Indian online payments.
How can this risk problem be solved?
Kiran says, “the alternative is to create a partner in between the banks and the ecosystem of SaaS companies, who is willing to underwrite the risks”. Razorpay is one such player, who is attempting to solve this problem.
Why can’t a Startup go to Bank directly? What is the way out?
The problem in recurring billing is not only the payment gateway but also the management of the subscriptions. Baking systems are all legacy systems. They are not able to handle the dynamic situations. For example, if a customer lost the card, the new card information should be updated in time. Such gaps are filled by the layer created by third party Payment Gateway solutions.
Also, this further requires some subscription management systems in an online system. Krish calls this “billing intelligence”. This can either be provided by ready made solutions like Chargebee or can also be built in-house.
Startups can solve this puzzle by availing solutions offered by companies like Razorpay and Chargebee. Razorpay reduces the complexities of recurring billing on banking side. Similarly, Companies like Chargebee reduce the complexity of “billing or invoicing intelligence”.
What more can be done on Policy side?
Krish feels, if we engage with banks and banks can build a system that can underwrite risk for small players and also make Bank realize how service providers can help mitigate risk, there can be a chain built to see a successful recurring billing system in India, easily available to SaaS startups.
Kiran’s view is, from policy perspective not much can be done as RBI does not mandate anything specific. It has do’s and don’t type of framework. His view is charge backs are like non-performing assets (NPAs). So, large merchants in India will still get recurring billing solutions from many payment gateway solutions easily and will also have in-house capability to build billing and invoicing platforms.
Looking further (iSPIRT’s Views)
If one researches hard there is possibility to find payment gateways offering recurring billing solutions in India. However, there are lots of questions asked and it is certainly not available as an across the counter service and definitely not to everyone.
Aggregator service like Razorpay have a chance to fill this gap and they will offer valuable service much needed by Startups. A combination of solution like Raozorpay + Chargebee could solve the problem for many startups.
RBI has not banned the recurring billing. On other hand it has also not put the record straight. Going further, there is a need that RBI and Government of India recognize the importance of recurring billing in a digital economy. Once the need is recognized, a layer of reform in policy framework by RBI should be added. Clear regulation that covers all stakeholders as well as encourages banks to offer recurring billing solutions, is needed. A digitally signed online agreement that is backed up by a 2F authentication in first transaction should be enough to cover the paper formalities required for a fixed amount, fixed tenure (frequency of payment) transactions. The buyer of service can revoke the online service agreement online any time. Customer’s risk is therefore limited up to the time he opts out of the service agreement.
RBI will not take actions that promote an Industry. It is Government of India, who should create an enabling policy for SaaS companies. Ministry of Electronics and IT (MEIT) can carve out a scheme that can mitigate risk of Bank, in turn helping SaaS industry. Such things should happen under the National policy on Software product being considered by MEIT.
The bottom line is that the Indian businesses must have access to multiple choices of service providers for availing recurring billing services at a low cost per transaction with a well laid out fraud protection and complaint redressal mechanism.
Both GOI and RBI needs to work together in direction of removing the bottlenecks. India is unveiling a unified digital market with GST coming in. Without seamless digital payments not only we will fall short in our dream of creating a globally competitive SaaS industry but also a fully buoyant ‘Digital India’.
This article can not be considered Legal advise, please consult a lawyer and/or accountant before incorporating.
The US has one of the most mature banking and financial systems in the world. Owing to this many internet businesses prefer to incorporate in the US. In India the reserve bank of India does not allow businesses to automatically charge user’s credit/debit card’s; explicit user consent is expected via a second factor authentication like an OTP or a password. This hampers the smooth functioning of subscription businesses that charge users every month.
However A US based company can store its user’s credit cards and charge them automatically in a recurring fashion seamlessly. For the convenience of auto-charging credit cards many ‘Subscription As A Service’ (SaaS) companies based out of India have their headquartered in the US.
Deducely being a SaaS product, we wanted the ability to charge our user’s cards every month automatically without asking them to input their card number every month. Since we operate from India our options were very limited
We had 3 options in hand, but we had apprehensions too:
Incorporate in a foreign country – Too costly, close to $2000
Use 2Checkout or FastSpring – About 10% to be paid as commissions
Use Paypal subscriptions – Developer un-friendly, average customer support
Enter The Atlas Program
Stripe atlas is a bento box for businesses to get up and running. Stripe Atlas grants the following for a flat fee of $500:
US company registration (A Delaware C corp).
Registering with the IRS for taxation purposes.
A Zero balance US bank account in Silicon valley bank.
Access to Legal and Tax consultation from PwC, Orrick and UpCounsel.
$15,000 in Amazon Web Services Credits.
A Stripe account ready to accept payments.
We were skeptical about this program, We even felt it was too good to be true but when we approached Avinash Raghava of iSPIRT and Suresh Sambandam of KiSSFLOW for expert opinion, we were advised to go ahead and incorporate via Stripe Atlas. It was totally worthwhile.
How to incorporate a Delaware C Corp in the USA through the Stripe Atlas program?
Step 1: Get an invite to the Atlas program
This is the most difficult part, as of now the stripe atlas program is invite only, you could try requesting an invite on the website or via their twitter account. Once you are successfully invited you’d get an email with a link that can be used to register an account at Stripe Atlas. Now You’d be required to create a new Stripe account.
Step 2: Enter detailed information about your business
Once you have signed up for the Stripe account you would be presented with the following overview screen :
When we click on get started we are presented with a screen that asks a few details about the product and the business:
Step 3: Enter how you’d like to structure your company
There are two ways to structure your company when your business is not physically present in the US. This is a very crucial decision and should be taken after thorough deliberation.
Setting up a US headquartered company with an Indian (or other non US country) subsidiary:Freshdesk’s model
We had not incorporated anywhere yet and we went ahead with Freshdesk’s model , so we were asked to enter our company’s desired name, while entering the desired name please ensure that the name is not registered by any other entity, a simple google search could help you out.
Although we could have entered our local non US address, we went ahead and purchased a physical address in the US through virtual post mail for $10/month; virtualpostmail.com scan the physical mail that we get and email it to us. We received our ETPS(Electronic tax payment system) credentials through our physical address. Though the US address wouldn’t be of any other use in the immediate future, we wanted Deducely to be global and hence we invested in a US physical address.
We got a US phone number for free through Google Voice and entered that as our phone number, to get a Google voice number you need to know someone with a US phone number from a major carrier like Verizon, AT&T, T-Mobile or Sprint. Once the google voice setup is done you will be able to make and receive calls from your US google voice number through the Hangouts dialer app . You could enter your local number here as well.
If you choose to set up a US subsidiary with a Non US company as the parent you would be asked to present the Non US company’s tax ID and registration certificate. Please consult your local lawyer and accountant for any regulatory compliances that need to be met.
Step 4: Enter the details about the people in the company
In this page you’d be prompted to enter the personal details of all the people who would have more than 25% stakes in the company. Please have a scanned copy of your passport or any other government issued IDs.
Now, in the same page, you will also be asked to select the company’s president, secretary, incorporator and directors.
Step 5: Enter the bank account administrator details and pay:
Getting a US bank account is the most difficult part for any non US entrepreneur , You either have to be physically present in the US or know someone in the US who could introduce you to the bank. These banks tend to have high maintenance fees and high minimum balances associated with them. However stripe atlas has partnered with Silicon Valley Bank(SVB). SVB provides a zero balance account with no maintenance fee for 2 years. In the following screen you will get an option to select the administrator for the SVB account
Step 6: Enter your credit/debit card details:
You will be presented with a stripe checkout popup where you can enter your card details. You will we charged $500 USD only after the successful incorporation of your company. After the payment you’d get a prompt saying that your incorporation would be complete in one week.
Since Deducely was one of the initial pilot companies to be incorporated via the Stripe Atlas program we did not have to spend a dime to get up and running with a US company and bank account! Thanks a tonne Patrick, we owe you one!
Step 7: The application review process:
I am not sure if this is step would be applicable for everyone. A couple of days after we had submitted our application we received an email from stripe requesting us to furnish details like our estimated timeline, screenshots, Terms of service etc… and we showed them our screenshots and git account; after a few anxious days our application was accepted. I feel this is necessary steps to prevent abuse of this program.
Step 9: Digitally sign the incorporation documents:
After the review process is done and dusted, all the associated people in step 4 would receive an email with a link to a Docusign document. You can read the documents and sign. We would be able to proceed to the next step only when all the associated people have completed signing the documents.
Step 10: The AWS activate account:
After signing all the documents you’d get an email with a link to activate your AWS goodies. You’d get:
$15,00 in AWS credits valid for 2 years.
Access to AWS web based training (worth $600).
Access to AWS business support (worth $5000).
Access to AWS solution architects.
Step 11: Receive your incorporation documents:
After you digitally sign all the incorporation documents , wait for around 5-7 days to get your Delaware C corp incorporation certificate and your Tax ID(Employer Identification Number) from the IRS.
Step 12: Opening the SVB account:
Since we had given a PO box address in the US we were asked to give the physical address where our business is present. We emailed this to SVB and after 1 week we were granted access to SVB online banking.
This is the end of the incorporation procedure, here a few things to be done next
1) Signing the stock plans: Stripe would email you a draft of a Stock agreements, get it signed by your board of directors. Stripe would also schedule a free 30 minute call with upcounsel – a law firm for clarifying any queries.
2) Sending funds to the SVB account: Ideally you can wire funds into your SVB account, but this is a tedious process involving a lot of waiting. We found square cash to be a convenient way to send cash into our SVB account. It takes 2 working days for the cash to show up in your bank account.
3) Getting a credit / debit card : You have funds in your SVB account and you want to pay for your hosting and other subscriptions, there are two options that I am aware of, the first method would be to apply get a business credit/debit card from SVB and get it delivered to your address. The second method is signing up at privacy.com. Privacy.com is a new age fin tech company that links with your bank account, through this service you can generate virtual VISA cards with fixed spending limits and close them whenever you want. We use privacy.com to generate virtual credit cards and track our spending. This service is free!
4) The Unofficial Stripe entrepreneurs Facebook group: If you are not based in the US and have a US based company , we have created an unofficial stripe atlas entrepreneurs group in Facebook . You are not alone here, if you run into any issues or need help you can ask other fellow atlas entrepreneurs for help.
Overall our experience with Stripe atlas was exemplary. Their support team always had our back; I’d like to give a huge shoutout to Anita from the Stripe atlas team, she was not only very knowledgeable but also very patient in replying to the barrage of queries that we raised every day! Ideally a service like this would cost you at least 800$ without the bank account and $15,000 in AWS credits. Stripe Atlas = A happy meal for company incorporation!
If you need any help or have any queries related to this post please reach out to me at aswin <at> deducely <dot> com
When a capsule is launched into space, the initial rocket gets it off the ground. However, that rocket can only get it so high. Eventually it runs out of fuel and the structure needs to drop off. At that time, a second rocket booster ignites and continues to propel the capsule into space.
In the world of startups, getting your company into orbit usually takes a few power boosters to get there. Your initial boost may get you off the ground, but it’s not enough to get into space. Even if you are at a later stage, if you don’t have the right final rocket, you can still crash to the ground before you reach orbit.
iSPIRT offers several activities to help SaaS founders and companies right when they need it. Each of these sessions acts like a multiple-stage power booster to give your company the lift exactly when you need it.
Most SaaS companies need these three rocket boosters to achieve orbit:
Here’s a bit about each of these sessions. While the principles will apply to any business, it applies much more aptly to SaaS software companies
Stage 2: Getting to $100K MRR
Your Stage 1 rocket should be enough to get you off the ground and achieve a good height with your initial set of customers. Now you have a working hypothesis that puts you in pursuit of the right product-market fit.
Your Stage 2 session kicks in when you’ve found the product-market fit to systematically grow the business. For companies at this stage, we moderate Playbook Roundtable sessions. This slide deck should give you a broad idea of what we discuss with the playbook participants.
Stage 3: Hyper Growth – Firing All Cylinders
Companies that have crossed $1M ARR are selected to attend this session. A typical SaaS company doesn’t have enough resources to pursue a lot of initiatives. Often there is a big disconnect between what founders want to pursue in S&M viz-a-viz what they should focus on to get to the first $1M as quick as possible. Therefore, Stage 2 centers around a focused set of must-do initiatives, rather than spray-and-pray on many initiatives. You might notice that many topics in Sales & Marketing are missing or discouraged in the slide deck. That is by design.
Stage 3 is extremely important because even though you’ve cleared thousands of miles, you still aren’t in orbit yet and need the final power booster to get there. For Stage 3, we bring you none other than the SaaS Superstar, Girish, Founder & CEO of FreshDesk, to share how to take your $1M SaaS company into a $5m enterprise.
If your SaaS startup is sitting on the ground or about to make a nose dive, don’t miss out in getting these booster shots to launch yourself into a grand orbit.
Oh, we also do a big gala event called SaaSx once in 6 months in Chennai, where we bring together all the SaaS founders in one place. The last three editions (SaaSx1, SaaSx2, and SaaSx3) have been blockbuster hits. And if you are in Bangalore, you can join the big crowd attending the SaaSx sessions on ‘SaaSy Bus’.
If you are a member of a SaaS founding team, you should definitely join the SaaS Insider Group and be up to date with SaaS news in the country and across the globe. Last but not the least, Avinash Raghava, Fellow at iSPIRT is the common thread among all these orchestrated activities for SaaS from iSPIRT. He is passionate about helping SaaS founders and none of this would be possible without him.
At Mypoolin, we have a consistent and strong belief that a very significant aspect of building a business is keeping the fundamentals strong. The fundamentals are not just the core pillars for making the company stand as an entity, but also serve as defining the form as the firm emerges from its initial amorphous self. When we started the venture last year, we had some basics and an initial direction in mind, but we could not define those at that time.
For the first timers, we are the social payments product company of the country. We enable seamless peer to peer transactions and group transactions for all use cases, varying from movies to events to parties to outings to rent and more. Over the past 12 months, the product has grown both qualitatively and quantitatively. Starting from transactions just worth a few thousands per month to achieving a high growth rate currently, we are intent on making this product an integral part of your social lifestyle.
Let us dive into the fundamentals that continue to shape us –
Tackling a big problem
The reasons big problems are so important to be solved, is that once you solve them, half of the battle (or even more) is won. Not only does it ensure that the product can deliver, it also incentivizes the user by default to explore and use the same. Once you hit a raw nerve and resolve a crucial pain point, you ensure that the barriers to adoption are now as low as they can be, from the point of view of motivation of the user. And at the same time, when the vision is big, everyone in the team is driven as well to execute on it and be a part of it.
Simplifying a challenging solution
Well, it is one thing to say and another thing to build on it. After defining the problem and realizing the challenge in front, we started iterating on the product and building it piece by piece. All along some factors and pointers helped us in defining the direction of the product –
What exactly does the consumer desire? (Putting ourselves in their shoes)
Does our solution present itself in its simplest form? (Analyzing)
Are users really feeling empowered by using it? (Observing and tracking)
The above pointers will answer that whether the customers have the necessary ability to utilize our solution or not. And at the same time, since we are combining two domains of the internet viz – social network and payments into one; the product tends to become intricate in terms of its engineering. This in turn makes sure that the ability of the team is tested as well to its full potential for making the product really polished.
Discipline, Focus and Fun
Another key fundamental in running a growing company, especially in the complex and sensitive infrastructure of payments, is the presence of discipline and focus. This applies to both the phases-
Developing the product as well as
Tracking the analytics and output
At the same time, fun is always a part of the equation and the hidden gem at times for everyone to appreciate the mission as a team. In fact, the point of fun trickles everywhere, including our product as well which portrays the statement of ‘Payments made fun’. Traditionally, payments have been a painful and mundane part of our lives, but not anymore. Time to make them cool….
Wish to join one of the fastest growing ventures in the intricate, growing and powerful domain of fin-tech? Ping us directly at [email protected]
Over the last few months, I have interacted with a couple dozen awesome product startups in India as a part of product roundtables organized by iSPIRT, a non-profit industry group for software product companies in India. The roundtables that were in Pune, Delhi and Ahmedabad included around 8–10 product founders getting direct feedback about their products from their peers and experienced product founders.
The goal of this roundtable is to help software product companies gain more traction without doing sales. Sales is a great tool, no doubt. But if the product is designed in a way that it can be used without anyone’s hand-holding, then it can be used by a large number of people very quickly. The feedback from these users creates a virtuous cycle of improvements and more users. This has been the central theme of these roundtables.
Most of the products we saw were well executed. A cottage industry of SAAS applications and marketplaces is blooming all over India. Many of them have the potential to become sustainable and profitable businesses. The obsession is ofcourse about building the next unicorn, the billion dollar startup, but we will keep that on hold for now. If we are able to create an ecosystem with hundreds of successful apps, the unicorns will automatically emerge.
As a bootstrapped and sustainable startup, with a product that is more than 8 years old, we are probably only a few steps ahead of these young startups. Sometimes, you can learn a lot more from people who are a few steps ahead of you than those who are way ahead, so I am happy to share my journey with them. In the process, I have learnt a lot from these startups too and having interacted with so many of them. There are some themes that I have seen again and again that seem interesting.
Making good looking CRUD apps is a commodity
The state of web tools in 2016 is such that building a basic app that has CRUD (create, read, update, delete) functionality is very easy. The frameworks and design resources available can make your apps look professional and neat. A couple of devs can churn out such apps with reasonable polish, within a few weeks. Using contractors and themes, you can churn out good looking websites pretty fast too.
What startups need to think about is distribution. How will people know about the app? Why will they sign-up? Why will they tell their friends about it?
Sales is still the default option
Most startups still rely on high touch sales to get users. The good thing about doing sales is that you get first-hand feedback from your users. If you are a good sales person, and if you are persistent, you can convince the user to sign-up for your application too.
The bad thing about this is that you have no idea what a user who has no context about your product thinks about it. You have no idea of easy or hard it is to start using your app instantly. You cannot reach out to users who are not in your network or timezone. And doing sales is expensive and not scalable.
To build applications that get customers without sales, products need:
Great copy on the website that makes it extremely easy for someone to understand what the product is about.
Automated, instant, no-hassle sign-up.
Online help with videos and documentation.
Excellent product usability and quality.
Often, these projects are as daunting as building the original app, if not more. Often this is what takes time and is largely under-estimated.
Standing out, communicating clearly
Very few of the products we saw were memorable in terms of their marketing and communication. Since we live in the internet era where we are exposed to the best quality of content, it becomes even more important to be memorable and interesting. As the branding and design great Stefan Sagemeister puts it, “Everyone who is honest is interesting”, companies need to be a lot more honest about who they are and why they do what they do.
The best example I can think of is Basecamp. They have set the standard of how companies should communicate about themselves. Companies can use a lot more authenticity and their personal stories a lot more. Using stock images with caucasian models just does not cut it.
It has been fantastic communicating with these startups and the credit of making this happen goes to Avinash Raghava and iSpirt. Doing grassroots work is always hard and unsexy and not very visible, but is very necessary if you want to create a lasting change. It has been awesome to interact with Niraj and Pravin, two awesome product thinkers with whom I have conducted these sessions.
I wish I had access to such mentoring when I was starting off few years ago, and I am excited about the future sofware products that are coming out of India.
Once upon a time, there was an Asian Dragon and an Asian Elephant, both wanting to be self-sufficient in defence technology. But they chose different paths. In Jan 2004 one went out to acquire four retired aircraft carriers for study, along with purchasing foreign aircraft carrier designs; which resulted in this Asian Dragon commissioning their first Aircraft Carrier in 2012. The Elephant, however, did not invest in any old aircraft carriers or their aircraft designs, but went on to buy out an old Russian Carrier which had to be upgraded to being sea worthy; with the refit alone costing it nearly 2 ½ times the price that was originally agreed. This Asian Elephant – India; still does not have its completely indigenously built ship, whereas the Dragon – China, is building its 2nd.
Our take – India needs to completely focus on Indigenization. India can achieve self-reliance by having control on design IPR, know-how and innovation. Establishing ‘Country Champions’ in each of the critical areas of technology for products today upgrades and future-proofs it. Since the rate of change in this area is comparatively higher, agility is critical. And, this is where engagement with the startup community will help India develop world-class products quickly.
There are four pillars around which this strategy needs to be developed-
Indian Entrepreneurs must focus on Innovation & Design; and eventually prepare the business to scale globally.
The Academia must encourage fundamental research in Warship Building Design and Innovation; and help build and drive models as per world class standards.
Encourage Foreign Investments in Semi-Conductor Fab’s; Component Manufacturing Plants in India; ToT of Mature technologies.
And most Importantly the Govt. needs to address Disabilities faced by the domestic industry and support Polices for R&D and Market Access.
The government needs to fund long-term investment in critical technology development; make existing policies more effective for R&D; reduce the Cost of Money for Industry on Interest Cost; and be open to fund risky R&D in the private and government sector. The Govt. Needs to encourage all R & D/ Technology Development Funds of organizations like DRDO, to be used via Challenge Grants, enabling the startups to be a part of the process to solve various challenges.
Market access is a big pain point for the Startups while dealing with the Govt. The Govt. needs to encourage a level playing field by removing restrictive eligibility conditions like prior experience and turnover to allow the budding domestic Industry to compete. Onerous NCNC conditions should be removed,; trials should be paid for or done post selection; and award of contract should come with strict penalties.
And finally, the government must increase the effectiveness of the “Offset Policy” by encouraging foreign OEM’s to support vendor development for discharging offsets and to appoint a Joint Secretary to address the R&D and market access issues and as well work with the industry to shape technology strategy and its implementation and help them look at the bigger picture.
With over 19,400 Tech startups serving various sectors of which 5000 have been started in 2015 alone, Startups in India are all set to reach over 1,00,000 startups, employing over 3.5 Million and creating over $500 billion in Market Value in this decade. Startups like Tonbo Imaging, Aurora Integrated Systems, Astra Microwave and many others are already helping the Government in solving the various technology problems.
With over $1.78 Trillion being spent in 2014 in Defence, America contributed $610 Billion by far ahead of rest of the world with 35% of the overall spends. The interesting factor is that Countries in Africa, Asia, Middle East and South America contributed to over 43% of Defence Spending at $765 Billion. This figure is going to keep increasing by 6-7% on an annual basis and see the Defence Spending from these countries touching over $1.10 Trillion by 2020. Of the 25 largest defence spenders in the world, 13 were from Asia and Middle East. This is where the opportunity is for India to supply to Africa, Middle East, South America and other friendly Asian Countries.
With the growing soft power of India, this opportunity is for us to leverage. Startups can play a pivotal role for India to leapfrog ahead of others in the defence industry.
Authored by Mohandas Pai & Co-Authored by Nakul Saxena
It seems there is still time before the Software as a service (SaaS) blooms well in the Indian domestic market. The biggest friction points are relatively low acceptability of online model, lack of quality internet penetration in country side and the unsupportive policy framework e.g. recurring billing, expensive payment gateway solutions and confusing indirect taxation in India. Owing to these bottlenecks, many SaaS companies relocated outside India or open a branch or foreign subsidiary.
iSPIRT has been pursuing a stay-in-India check list with Govt. of India, with following three top taxation issues embedded in it:
Removing confusion between ‘goods’ and ‘service’ tax on Software
Not treating software sales as royalty income and do away with TDS on sale of software
Start taxing online B2C sales by foreign companies
All three are relevant to the Software product Industry. However, the problem of ‘goods’ verses ‘service’ tax is intriguing to be solved and the subject of this article.
From tax perspective, many get carried away with the etymology of ‘Service’ in SaaS and believe service tax is the obvious classification. However, the classification under service alone, can’t be the most advantageous position for SaaS industry in a complex tax regime like India which is riddled with confusions.
This article attempts to explain this confusions of goods verses service tax effecting software product industry where SaaS is a special case in consideration.
Explaining the confusion between Goods V/s Service tax
The Indian tax system today classifies Software in following manner:
1. Treated as goods – has a tariff code associated (ITC HS Code)
Pre-packaged on media or paper license or PUK
Pre-packaged embedded with hardware
2. Treated a Service
Bespoke/Customized software development
Rest everything else that is not covered in a) above (SaaS falls here)
Those covered under a) above have a tariff code (ITC/HS Code) associated with them and hence fall under ‘goods’. The pre-packaged category (i.e. the Software products) have following tariff code assigned currently.
4907 00 30
Documents of title conveying the right to use Information Technology software
4911 99 10
Hard copy (printed) of computer software (PUK Card)
8523 80 20
Information technology software on Media
Same pre-packaged software downloaded ‘online’ is covered under service tax and is not treated as ‘goods’. Further, the tax system does not understand other models of SaaS, PaaS etc. All other categories of Software i.e. other than mentioned in a) above are covered under service tax by default under a logic of exclusion (not having covered under the tariff code list).
There is no guarantee that if the Service tax is applied there will not be a goods tax applied. VAT is applied in many cases based on interpretation in a way leading to double taxation. Even large players like Microsoft are not able to circumvent the double taxation. Their SaaS based offering (office365 bundled with exchange and storage on cloud) are taxed differently at different point of times. Sometimes just the service tax and at other times service tax + VAT. You can hear a large number of use cases like this.
According to tax authorities in central government, the problem is solved simply by making goods and service tax rate one. They have solved the riddle by bringing in a notification for paying only one of the two at a given time excise duty/CVD or Service tax. But they have no remedy on states charging VAT. Whenever it is considered that the transaction implies ‘Transfer of right to use goods’ for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration, it is deemed to be a sale under Article 366(29A) of the Constitution of India. As a result Software even when defined as a services gets caught in 29A of (366) and VAT is applied based on how local authorities interpret a transaction.
The root cause of this confusion is that the tax regime has not given place to ‘intangibles’ at par with tangibles. As far as the tangibles trade is concerned, intangibles are treated as ‘goods’ as defined in 366(12) of the Constitution and their sale is covered by sale of goods act 1930. All that is defined as goods cannot be service by definition.
Does GST solve the puzzle?
Some people argue that these ‘good’ v/s ‘services’ tax problems will all vanish when GST is rolled out, based on the argument and assumption that the rate of tax in GST will be one.
GST is a ‘supply’ and ‘destination’ based tax system replacing the concept of manufacturing with concept supply of goods and supply of services. GST will also amalgamate most indirect taxes in existence at center and state. Both Center and state will have power to tax under GST for both goods and services. At present states do not have power to tax services.
One tax rate may be a necessary condition for attaining the neutrality and level playing field but not the sufficient condition.
Following are some reasons why even one rate GST is insufficient to solve the problem:
GST bill does not take cognizance of the root cause of absent definition of a ‘digital good’ i.e. including ‘intangibles’ at par with tangibles
The value chain of use and consumption of ‘goods’ and ‘services’ are quite different and hence will pose challenge in practice
The tax structuring is not done exclusively for the either software or the digital business. Also, Tax departments are prone to provide differential rates for new industry structures and business models for social needs under pressure of lobbying and differential tax rate may emerge for some segments of the Software Industry segments. The needs to tax new sectors of business and new models of business all arise in bits and pieces and then rules are overplayed above the basic tax structure, thus causing the confusion.
GST legislation is not clear on tax credit system in its completeness e.g. the inclusion of zero-rated supplies
The Clause (29A) of Article 366 has not been deleted in the proposed constitutional amendment and would need to be deleted as this would be redundant under the new concept where sales and deemed sales will be replaced by concept of supply or it may give rise to misuse under some pretext.
Any new statute has to be tested on ground it takes few years to evolve and align with ground reality. GST will be no exceptions.
GST bill has yet to be passed. After the GST bills is passed the rules will be framed under CBEC and it is expected that CBEC to be in its comfort zone will like to use existing frameworks and for Software product industry adoption of existing framework will not be helpful and it is imperative on us to suggest to government remedy for these long existing problems.
Proposed Solution – the need to define “Digital Goods” and “Digital Service”
To remove the root cause of the problem, a clear distinction between a “product” and “service” or “digital goods” and “digital service” is needed.
In the previous blog ‘SaaS’ – the product advantage and need we have argued that the product side in SaaS cannot be ignored. Even the service component in SaaS is about using this digital (intangible) product. Let us understand the product/goods properties that are commercially viable and legally tenable.
iSPIRT has been pursuing application of a frame work “COG-TRIP Test” that can be used to define Software Products as distinct from Software services. A SaaS product can be mapped to the complete COG-TRIP test. Given below is the framework of COG-TRIP.
1. Countability – no of licenses/users/subscribers
2. Ownership and Intellectual Property Rights
3. Qualification as an Intangible Good
4. Tradability: The Software Products (Goods) can be sold through different delivery modes.
5. Right of service/Right of Use
7. Production/Development Cost: All software production costs are capitalized and subsequently reported at the lower of unamortized cost or net realizable value
In the legal framework the above definition of “Product” has to be mapped to “Goods” as defined in 366(12) of the Constitution and hence there is need for the definition of “Digital Goods” at par with constitutional provision of “Goods” in article 366(12) which further is related to the Sale of Goods Act 1930. This will also cover the article 366(29A) aspects.
Gradually the world is also moving toward the above proposed scheme of overlaying the existing structure with a clear definition of ‘digital goods’ and ‘digital services’. US has a “digital goods and services fairness act” pending to be passed by congress. Australia has come up with a new digital GST.
The clear definition of ‘digital goods’ and ‘digital services’ definition not only provide the ease of doing business but also the level playing field against the foreign companies under new emerging business models every day.
Concluding notes – Looking for a long term solution
In a previous blog on ‘SaaS’ – the product advantageand need we have made a case for SaaS industry to be a formidable part of the Indian Software product industry (iSPI). For SaaS Industry, the advantage is in favour of getting defined under product (digital goods) category as an industry. This also infers that SaaS itself is a “Product” that provides a services to businesses or consumers who may actually fall in any industry verticals.
The tax is applicable on a transaction and does not get defined based on sector or industry. Once SaaS is recognized as Product (intangible goods) the next issue to be solved is asking for one single clear tax on a transaction be it “goods” or “services” based on the transaction.
Hence three basic requirements for SaaS segment to get a boost are:
SaaS is identified as a product or digital good
There is clear definition of digital goods v/s digital services in tax regime
There is one single and clear tax on one transaction
Tax and trade are much related in promotion of an industry and we hope these concerns will be addressed by Indian government in near future. SaaS can become a segment that can bring India pride and has possibility of emergence of next google from India.
 Consider a real life used case. I am running an office365 email service, procured through an Indian partner of Microsoft and I pay service tax on the subscription. I went ahead and placed order for a new office365 (same service) for a different domain directly from Microsoft online, the invoice charges me 14.5% service tax as well as 5% VAT. I tried to get a quote from other partner of Microsoft and again I get a quotation for 14.5% service tax and 5% VAT. In the first case I am buying from a partner of Microsoft who is a hosting provider. In second case the partner is a usual Microsoft partner selling their products or services.
Now consider buying office365 (office 2016 1 year subscription) for desk top licenses and there is CVD + VAT, even when it is a mix of offering both Product and Service for online storage and fully installed office pack.
The above used case mentioned above is of the office365 business essential plan has all the components built in the exchange online, access to MS Office products online only, online storage etc. It actually carries the many examples of the MS Office 2016 offered as SaaS model, Exchange offered as an email service and Storage offered as a service.
Disclaimer: The above example is based on real life personal experience of the writer and has nothing to do with iSPIRT.
The contribution of entrepreneurs to boosting the global economy is undeniable. Right from the Graham Bell to modern day Steve Jobs, their journey of innovation has greatly benefitted their countries and the world in general.
For sure, entrepreneurs are cut from a different cloth, though one cannot really pin down a particular type that defines them. They are driven, creative individuals with a great capacity to overcome hurdles and adverse conditions in order to realise their ‘big dream’. It’s commendable how they manage to fulfil a gap in the market or create a new demand altogether with their disruptive ideas.
Here are some of the most consistent six qualities that define a successful entrepreneur and make them tick in a highly competitive environment:
They have to have nerves of steel to branch out on their own, do something new, with a dream in their head and little in their pocket. “To win big, you sometimes have to take big risks” in the words of Bill Gates, aptly defines their attitude. It also indicates an acceptance of failure as apart of that risk. Successful entrepreneurs usually chalk out all the aspects of failure and keep resources, plans and bandwidth for dealing with them as a standby before taking the plunge. It is the challenge of making a winner out of nothing which gives them the adrenaline push to make them take the plunge.
Ability to influence others
Entrepreneurs are no less than a firebrand idealist, politician, military strategist and actor rolled into one. They have to be able to sell their dream to their employees, customers, investors, shareholders and other stakeholders. Entrepreneurs possess a very high social intelligence and an ability to build relationships that help in their company’s growth. As a result they are able to get the help of mentors for valuable advice, garner support from fellow entrepreneurs for networking and build a loyal and capable team for the firm as well a loyal customer base. It is this emotional instinct and empathy with others which helps them strike the right cord with others and get things moving in the right direction.
Foresight is perhaps what sets the best entrepreneurs apart from the rest. After all, entrepreneurship is all about identifying the right opportunities and seizing them at the right time in order to stay ahead of competitors and conquer a larger share of the pie. The key is to be able to spot the opportunities long before others do. For instance, Steve Jobs was always known to be steps ahead of competitors when it came to technology, and hence was able to launch one iconic product after another while he was at the helm at Apple.
An eye on the ‘Big Picture’
Entrepreneurs are visionaries and always have an eye on the big picture when taking any decision. They understand the implication that the smallest of decisions can have on the organization, and hence, know exactly whether or not it is in its the best interest to implement it. The entrepreneur’s true value is in creating the path to the vision and guiding the company towards it, making sure they never lose focus. In fact, it is very easy to stray as the daily struggles and challenges tend become the biggest distractions. It is during such times that they not to hold fort and lead the way for others to follow, inching closer to the goal with every step. It is best to leave the details and day to day workings to the staff and managers.
There are very few guarantees on the path of a start up and an entrepreneur is well aware of that. A few rough knocks and road blocks are treated like learning grounds for the future. Instead of agonising over the wrongs, they analyse what went wrong, and take corrective and preventive steps to correct themselves. Above all, they don’t shame failure, but celebrate it, because with every failure you learn something new that you can use to propel yourself and the startup into ‘something bigger’. Mr. Sunil Mittal, is a great example of this quality. Even after two failed entrepreneurship attempts at a cycle parts business and a capsule making business, he didn’t give up. He started again with a new enterprise of manufacturing push button telephones, and ever since then, there’s been no looking back!
More than anything, it is the attitude that sets an entrepreneur apart from others. Real entrepreneurs are never afraid of failure. They are driven by the desire to accomplish their mission, no matter what and have a ‘never say die’ spirit that keeps that going even under the toughest of circumstances. No amount of pressure can make them crumble. Rather, they see every problem as an opportunity to come up with new and unique solutions that’ll work.
It takes a lot more than a great idea to become a successful entrepreneur. Aspiring entrepreneurs can take a cue from these points and imbibe some of the aforementioned qualities, if they plan to prove their mettle and are here to stay and make a difference.
India has all the potential to lead the world in the SaaS segment, yet the largest number of SaaS companies relocate out of India, for want of ease-of-doing-business. SaaS is one of the major blocks in the emerging Software product Industry of India and it needs urgent attention in this digital economy age.
Whether SaaS is a product or service is often debated.
From the perspective of integration of SaaS into the overall policy frame work of the country, it is crucial for us to understand the dynamics of the SaaS business.
This is the first in a series of blogs to understand the dynamics of SaaS as a sub-sector within the Software Product Industry. The idea of this blog is not to prove that SaaS is not a service, but to emphasize that it closely relates to the Software Product Industry, and is distinct from the custom built, project/program run or SLA based IT/ITES services Industry. And further, there is a need to include this as a part of the Indian Software Product Industry (iSPI) in order to be in an advantageous position to both – promote the SaaS business and also to develop an eco-system that is synergistic to all segments of the Software Product Industry.
SaaS has both a product and a service component. The product precedes the service. The service is not just the access but also the elements of all that goes into providing service to a consumer. Whereas customer satisfaction is focal to the service component, the attractively featured product, stability, cutting edge technology, speed and security are focal to the product side. The product needs a continuous investment and development. Product is the flesh and blood of the SaaS business body, and the body needs the air of service, to breath and run. The interplay between the product and the service component of a SaaS offering is important for success.
SaaS – Product advantage side
SaaS as a product or a service is a border line debate. Here are some important pointers to why SaaS has more weight to be classified as a product than a service:
Software-as-a-Service is an online access or delivery model, thus offering a different business model. In most situations, the same Software (with same features) product can also be sold in a Pre-packaged form, delivered and used in an on-premises model.
A software in any form (on media, downloaded online, on premises or accessed online over Intranet or Internet) provides a service to a user but the software itself is a “product” or an “intangible good”. There is no doubt that SaaS is also a pre-packaged software. The distinction is in the delivery model and the business model.
Hence, all three forms i.e. the Pre-packaged software sold on a media, downloaded online and SaaS model possess the properties of ‘digital/intangible goods’. The other models of channel sales and distribution e.g. EULA, paper license and self-generated access PINs, all can apply to any of these three forms.
SaaS is subject to the same IP law and IP right issues as the non-SaaS product is.
SaaS is mostly sold in an MRP format, the price-quantity relation is very clearly defined. MRP is a concept clearly applicable to supply of goods, produced.
The condition ‘license for use’ can be a condition for a service but for a product the license is for “right to use” and as soon as the license is sold to the customer, for a consideration the “right to use” is transferred for the specified period of time. Thus, implying a condition of transfer of “right to use”.
Trade is the most important aspect: Many people assume SaaS means a direct B2C relationship between the SaaS Product Company and the end users. No SaaS company can become global unless it focuses on the ‘trade’ aspect of the business.
Even direct B2C has to incorporate trade as an important attribute. Microsoft when it sells office365 hosted product is a SaaS company that is trading a bundle of products and an integrated services through its channel partners. Scale can be attained only when a SaaS producer take with him a strong ecosystem of trading partners.
When trade has to be activated as an important attribute of a successful SaaS business, the transfer of ‘right to use’ or trade of ‘right to use’ becomes inevitable. Being a product company carries a built in message to channel partners for trade.
What is traded is the features of product, the ‘goods’ that you sell and the ‘service’ component gets activated only when the end-user interfaces. B2C can either convert in to a B2B2C or B2nb>c.
The Software Products of modern age may be a combination of complex scientific or commercial applications with a mix of data, voice, video, images, texts, document files.
A combination of one can produce another. SaaS therefore, cannot be limited to the strict periphery of a ‘computer program’ or ‘information technology software’ but graduate to be a ‘digital good’ that forms the basis of a ‘digital economy’.
Considerable capital is invested in R&D, product development and product improvisations on continual basis in any SaaS based product. The differentiation is achieved in Product side by bundling the differential features. The Differentiation in service side is also incidental to the robustness, user friendliness, ease of use, security and most importantly the together the quality of product itself.
Hence, even when the service side is so important to the SaaS business, the Q-o-S itself depends heavily on the quality of the SaaS Product.
The Software Product and SaaS Industry in India
The global Software Product Industry is estimated to reach $1.2 trillion by 2025. The Indian Software product industry today is about 5% of the total exports. The total revenue of software product industry in India is $6.1 billion today. Indian Software Product Industry by conservative 10% estimate will be $100+ billion by 2025.
According to the Google-Accel Report the SaaS business in India is about $600+ million and will be $10 billion by 2025, which makes it 1% of the entire Software product estimates.
IDC has a higher forecast which says, by 2018, 27.8% of the worldwide enterprise applications market will be SaaS-based, generating $50.8 billion where SaaS revenue is forecast to grow at 17.6% CAGR. 27.8% translates to approximately one third of worldwide enterprise applications market.
If a combination of all these numbers are to be believed, the global SaaS market in 2025 at a CAGR of 17.5% will be $157 Billion. If the share of SaaS (27.8% of global enterprise app market) comes true and is retained the SaaS business in 2025 will be much higher than $157 Billion.
The domestic market in India is not strong enough. Most SaaS players are presently targeting the matured global markets with matured online acceptance and internet penetration. The online acceptance in India is also on rise and the rising e-commerce industry speaks volumes about it.
The Domestic market is going to get further strengthened due to various factors in coming times. “Digital India” will increase internet penetration as well as improved bandwidth accessible to consumers. A drive for cashless economy will push large number of SMEs. “India Stack” will enable large number of SaaS products. Government buying will increase in SaaS space with acceptability of cloud and opex business models.
In view of the above, India can certainly aspire to be at a much more than $10 billion by 2025. India will need to harness its prowess to aim at 15% global SaaS market and hence aspire to cross the $20 billion mark by 2025, which is double of the Google-Accel report which seems to focus just the SMB market.
Pursuing the Policy for Software Products
The above mentioned targets require a serious look at the country level “strategy” and developing a complete eco-system that can help the SaaS industry boom in India.
This requires consolidating Software product as an Industry with SaaS as an important vertical block and accordingly a need for following:
Focused policy by Govt. of India
Aligned trade and tax regimes
Participative Industry action by various agencies on ground
iSPIRT has been following action at various levels on all of the above.
The National policy frameworks provide recognition to an Industry sector or sub-sector as well as provide a strategic frame work for growth of this Industry. There are two major Industrial policy frameworks.
The IT Policy is primarily catering to the IT Services industry and has mixed agenda.
National Policy for Electronic (hardware). The focus of this policy is to promote electronic products.
There is no national level policy focused on Software products.
To further this objective, iSPIRT is pursuing a National Policy for Software Products (NPSP). SaaS naturally forms a part of this proposed NPSP within the realms of Software products industry. Included part of these plans is the trade and tax specific issues with Govt. of India on reforming and making these regimes futuristic to compete in the world trade and ease of doing business in India.
One of the results of this active follow up on Govt. policy has been the Startup policy. SaaS has one of the biggest tractions in the Software Product startup space. SaaS startup is closest to the Software product startup in terms of issues and challenges faced.
Both the product and the service side of SaaS cannot be ignored. Even the service component in SaaS is about using this digital (intangible) product. Both – the product is intangible and also the service it provides is intangible – just as any other enterprise on premises software product. Yet, product is an overwhelming part, right from stage when SaaS is conceived.
The issues of product development, funding, marketing, trade and taxation are all common to the Software Product Industry.
In view of the above, it is advantageous for the SaaS Industry to position itself as a product-based service providing industry. This will help build an integrative Software Product industry of India, which can develop global products in all segments enterprise, on premises, mobile apps, cloud and SaaS based, even as we keep progressing towards building SaaS as new generation Industry.
SaaS will be the segment to reckon with as India emerges into a Software Product Nation in next decade.
Marketing for beginners
The morning of the SaaSx3, saw a round table by Pallav Nadhani, CEO of Fusion Charts.
And I was one of the few lucky people who managed to find a seat at this already cramped round table.
Pallav, kick-started the session with a question:
Who are you & what will the world miss if your company dies in 10 years?
The question (although slightly morbid) did its trick.
It gave us an idea of what we had in store for the rest of the RT and beautifully set the context for what we could expect. And what we had to do if we had to market a product.
Interspersed with quirky humour, anecdotes, and important questions to ponder, the session was definitely interesting and novel.
Here are some key takeaways:
Aligning Product with Marketing
We usually talk about our product, our goal as a company. But Pallav stressed on the importance of flipping the question and address the problems of the customer.
It’s only when marketing defines product, will the product shape into an answer for the customer’s problems. And you’ll be building something that customers will get value out of.
He asked us to put a “why” to the problem that we were trying to solve for our customers.
An example he cited from some big companies that asked this question:
“Why shouldn’t you have access to your files, whenever/wherever you want?” was Dropbox’s question before they started building their product. Similarly, ask yourself that “why” to the problem you’re trying to solve.
Quoting Simon Sinek’s TED Talk on the Golden circle, Pallav went on to discuss the important questions of the purpose, the process and the result
– Who to reach
– When to reach
– How to reach
Who to reach?
Identify the three personas you have to sell to: Influencer, buyer and user
Depending on the nature of your product, decide who has to be engaged to ensure you’re able to sell to them.
Figure out “Why” should that person use your product? Everybody has a different reason, but what’s that persona’s reason?
If you’re asking somebody to switch from an existing product to a new one, how seamless is migrating? If it’s a new product, how will you sell him the need?
Tip: Ensure you’re asking the same “why” as your customers. Pallav cited an example here. Every time there’s a new download, they send an email to the customer asking the purpose behind the download. This way, they made sure that they were delivering on what customers expect from them.
When to reach?
Collect as much information on your customer (in a non-stalky way, of course!). The information should include the information that they consume on a daily basis, and how do they consume it. And how do you make sure you are in those media, so as to make an impression?
A classic example of this that he quoted was the billboards. He asked us to recollect some of the latest billboards, and then tried to delve into the reason behind it. We discovered that we see the billboards that we choose to see. If you’re hungry, you remember a restaurant’s board, or a car if you’re looking to buy one etc.
Tip: Make sure you actively hit customers that are seeking for your product. Identify where your customers would be, and then hang around to make an impression.
How to reach?
We discussed various ways of doing the actual marketing here.
One of the classic marketing strategies is The Sniper Approach vs Carpet Bombing approach to marketing.
Swearing by the sniper approach to marketing, Pallav said that, rather than trying a wide casting net approach with different experiments, try a laser-focused activity with precision, to ensure you nail the sell!
And the only way to do this would be to, Know your user, see if you understand a DILO (Day In the Life Of) your customer (creepy, but highly insightful) and see how you can fit into the picture.
Also, can you partner with someone to push your product? Or can you poach any partners of your competitors?
Tip: Unless you discover who you are, and why you exist, nothing can help you explain it to your customers.
Here’s a quick summary of all the major points:
Find that key problem that you’re trying to address and make it your goal.
Identify your ideal user & study the various personas.
Now ensure you “marry” the your goals to the user’s needs.
Work towards creating an experience, so your prospects take action.
Collect as much information as possible on your customer, so you know when and how to hit them with your product.